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THE (MIS)ALIGNMENT OF INSTITUTIONAL DIMENSIONS:
THE IMPLICATIONS FOR SUPPLIERS’ SUBSTANTIVE
IMPLEMENTATION OF SOCIAL SUSTAINABILITY PRACTICES.
Sander de Raad (s1981358) 13-06-2016
Assessor: Dr. M. Wilhelm Co-assessor: Drs. S. Castaldi
University of Groningen
Research Paper for MSc International Business & Management
ABSTRACT
Suppliers active in the garment industry are subject to institutional pressures from both their home and host environment. Western buyers prescribe that, in order to gain access to foreign markets, suppliers ought to comply with local labor regulations. This thesis applies institutional theory to enhance our understanding on the implications on suppliers’
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INTRODUCTION
Large textile and footwear brands such as Nike, Gap, Zara or H&M outsource their production to autonomous factories which are primarily located in Developing & Emerging Countries (D&ECs). Often through arm’s-length contracting, these brands (i.e. buyers) benefit from low-working wages which enables them to buy cheap products from the factories (i.e. suppliers) (Boston Review, 2013; Gereffi, 2005; Huq, Stevenson & Zorzini, 2013). However, this outsourcing strategy has become notorious due to the corresponding precarious labor conditions (Howard-Hassmann, 2005; Robertson & Fadil, 1999). As from the 1990’s, an increase in stakeholder pressures pushed Western buyers towards accepting responsibility and incorporate social sustainability practices that would safeguard workers’ health, safety and general well-being (Locke, 2003; Social Sustainability Survey, 2015). Ever since, ignoring labor conditions in their suppliers’ factories can result in reputational damage (Locke, 2003). However, despite the rise of CSR1, disasters such as the collapse of the Rana Plaza in Dhaka, Bangladesh, killing 1,133 factory workers in 2013, continue to stain the reputation of the industry (Boston Review, 2013).
To avoid these incidents, many Western buyers demand that their suppliers comply with local labor laws and social sustainability certification standards (Christmann & Taylor, 2006; Lund-Thomsen & Nadvi, 2010; Nadvi, 2008). Although scholars find that these requirements can be an effective mechanism for protecting workers’ rights and consequently protect buyers’ ethics and public image (e.g. Aravind & Christmann, 2011; Christman & Taylor, 2006; Ataseven, Prajogo & Nair, 2014; Naveh & Marcus, 2005), in practice, these requirements are not always effective for preventing misconduct and ensuing disasters
(Boston Review, 2013, Huq et al., 2013). This is illustrated by the tragedy in Karachi in 2012, Pakistan where 262 employees of the Ali garment factory died in a fire of which they were unable to escape (Lund-Thomsen & Lindgreen, 2013). Prior to the incident, the Ali garment factory was accredited with the SA8000 certification, which is responsible for protecting workers’ rights (SAI, 2012). However, despite being certified, the Ali garment factory failed to implement the standards in daily practice (Lund-Thomsen & Lindgreen, 2013; SAI, 2012).
In fact, these shortcomings are prevalent throughout the industry. Multiple enquiries find evidence for so-called mock compliance in order to meet prescribed expectations (Huq et al, 2013; Jiang, 2009; SAI, 2012; Stevenson & Zorzini, 2013; Stevens, Steensma, Harrison &
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Cochran, 2005; Westphal and Zajac, 2001; Zhang, Ma, Su, & Zhang, 2013). Christmann & Taylor (2006) offer an explanation by describing two possible approaches for compliance: First, suppliers avoid costs by inadequately implementing certifications during daily
operations but nevertheless continue to benefit from buyers’ purchases. When these suppliers are certified but do not implement the standards in daily operations, we speak about symbolic
implementation. Second, if suppliers do implement the standards in daily operations, we
speak about substantive implementation. This implies that suppliers do bear the costs of implementation, which in turn results in improved labor conditions. Violations throughout the garment industry highlight that – although certified – symbolic implementation can have dire consequences due to the refrainment of daily implementation. Thus, stimulating substantive implementation is of paramount importance for protecting workers’ rights and improving local labor conditions.
So what drives suppliers’ behavior for avoiding implementation? Research often addresses the enforcement of suppliers’ behavior through the exertion of private2 formal governance mechanisms; controlling opportunistic behavior to reduce the likelihood of symbolic opportunism (e.g. Liu et al., 2009; Chrisman & Taylor, 2006; Locke, 2007).
Although controlling mechanism are used to curb symbolic implementation, its effectiveness is bounded and ought to be combined with other interventions (Welford and Frost, 2006; Reynolds and Bowie, 2004; Lock, Qin & Brause, 2007). In fact, even Social Accountability International (SAI) - responsible for Ali garments’ SA8000 certification – needed to rethink their monitoring system after the Karachi incident (Lund-Thomsen & Lindgreen, 2014). It is therefore not surprising that scholars propose enhancing and/or substitute approaches to stimulate substantive implementation. Private informal governance mechanisms such as relationship building (e.g. Christmann & Taylor, 2006; Jiang, 2009), stimulating trust & involvement (van Tulder et al., 2008), internal pressures (Kostova & Roth, 2002; Guler, Guillen & Macpherson, 2002) and normative values and believes (e.g. Chin, Hambrick, and Trevino, 2013; Muller, 2006) are used to offer alternative approaches for explaining
suppliers’ behavior. These studies present that Western buyers can influence their suppliers’ behavior through the use of these private governance systems. However, they remain
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inconclusive which governance mechanism is most effective at increasing substantive implementation of social sustainability practices. Rather, it seems that the effectiveness depends on the institutional context of these studies.
Interestingly, many of these studies seem to describe a common denominator: A misalignment between the buyers’ requirements and the suppliers’ acknowledgement of necessity (e.g. Chrismann & Taylor, 2006, Guler et al, 2002; Huq et al, 2012; Jiang, 2009). Issues such as child labor and working hours are two examples of this incongruence. For instance, the minimum working age prescribed by a certification standard does not always reflect the local regulations (Kolk & van Tulder, 2002). Moreover, some societies do not regard child labor as harmful and even perceive it as imperative to a child’s individual
development (Bellamy, 1997). Added thereto, whereas buyers generally consider overtime as an increased risk for exploitation, locally, the premium on hourly wages can also be
perceived as desperately needed, supplementary income (Faraz, Shamsi & Bashir, 2014, Perry & Towers, 2013). These examples point towards diverging norms where ‘universal’ standards do not necessarily reflect those of the local environment. Thus, by trading with Western buyers, the suppliers are subject to heterogeneous institutional pressures. As a result, their exposure to incongruent foreign institutional pressures can impede substantive adoption of practices (Ataseven, Prajago, & Nair, 2014; Kostova & Roth, 2002). However, most buyers require that suppliers need to comply with local labor regulations (Lund-Thomsen & Nadvi, 2010; Nadvi, 2008). Interestingly, the perception of ‘need’ for social sustainability can even differ within the suppliers’ institutional environment. The aforementioned example illustrates that, even though Pakistan’s formal institutions ban child labor, local societies perceived it to be harmless (Bellamy, 1997; Lund-Thomsen, Nadvi, Chan, Khara & Xue, 2012). Therefore, I suggest that the problems of heterogeneous institutional pressures will also occur within an institutional environment. Specifically, the phenomenon where local formal institutions (i.e. regulations) inadequately reflects local norms, values and cognitions (i.e. informal institutions). Consequently, I describe this phenomenon as a misalignment of institutional dimensions.
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labor regulations (i.e. symbolic implementation) to maintain legitimacy and thus continue to benefit from purchases of their Western buyers (Boston Review, 2013; Huq et al., 2013; Jiang, 2009). This paper therefore addresses the implications of heterogeneous institutional pressures for understanding suppliers’ implementation of social sustainability practices.
Research that covers the topic of substantive and symbolic implementation mainly focusses on organizational practice transfer – such as environmental and quality management – within a parent subsidiary relationship (e.g. Aravind & Christmann, 2011; Kostova & Roth, 2002). Although these enquiries provide meaningful insights in how subsidiaries respond to implementation pressures of headquarters, they do not cover buyer supplier relationships where hierarchical control cannot be exerted. Furthermore, scholars exclusively apply the challenges of institutional heterogeneity to divergent countries (e.g. D’Aunno, Succi & Alexander, 2000; Gooderham, Nordhaug & Ringdal, 1999; Kostova, 1999; Kostova & Roth, 2002), thereby overlooking how of the host countries’ (mis)aligned institutional dimensions would affect implementation quality. In fact, to the best of my knowledge, only a handful of enquiries uses institutional theory to investigate implementation behavior (e.g. Aravind & Christmann, 2011; Castka & Prajogo, 2013; Guler et al., 2002; Kostova & Roth, 2002; Montiel, Husted & Christmann, 2012), of which a few create domain specific, institutional pillars which measure their subsequent effects empirically (i.e. Kostova & Roth, 2002; Kostova, 2009; Marano & Kostova, 2016). Although Marano & Kostova (2016) focus on a parent subsidiary relationship, their work is the first to look at the effects of institutional pillars on CSR-related behavior. This empirical study therefore addresses a research gap by examining how the alignment of the suppliers’ institutional dimensions affects the
substantive implementation of social sustainability standards. By doing so, I respond to the call for further research that could help to advance our understanding about CSR-specific institutional pressures (e.g. Castka & Prajogo, 2013; Clarkson, 1995; Guler et al., 2002; Marano & Kostova, 2016; Montiel et al., 2012; Wood, 1991 & 2010).
Therefore, I aim to answer the following question: How does the suppliers’ local
institutional environment affect the quality of social sustainability practices? To answer this
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contributes to the literature on buyer-supplier interactions by empirically showing that the implications of organizational practice transfer are equivalently affected by the
(mis)alignment of the host countries’ formal and informal dimensions. Therefore, my findings accentuate that scholars and practitioners ought to include the effects of local institutions’ formal and informal enforcement pressures. This is of paramount importance as the increase of rules risk of pushing suppliers towards undesirable behavior, especially when the suppliers’ informal dimensions value social sustainability.
LITERATURE REVIEW
I invoke institutional theory in this thesis to gain a better understanding about the challenges of imposing social sustainability requirements on suppliers. First, general institutional theory is introduced where institutions are divided into formal and informal dimensions. Thereafter, the challenges of institutional duality are discussed in order to reflect upon its effect on organizational practice transfer; specifically with regards to CSR practice transfer. Subsequently, both the buyers’ pressures and the suppliers’ compliance mechanisms are discussed. This section will conclude by presenting hypotheses about how local,
(mis)aligned institutional dimensions affect the suppliers’ substantive adoption of CSR.
FORMAL AND INFORMAL INSTITUTIONS: THE IMPLICATIONS OF ALIGNMENT
Institutional theory addresses the environmental, behavioral characteristics, which are embedded in society. Commonly referred to as “the rules of the game” (North, 1990), these prescribed implicit and explicit rules enable meaningful social interaction within societies (Granovetter, 1985; North, 1990). These rules are imposed on individuals and organizations and require a degree of conformity, also known as coercive, mimetic, and normative
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Given institutions’ implicit and explicit nature, Scott (1995) presents three
institutional pillars of which each pillar represents different dimensions of the sociological game; also known as the regulative, cognitive and normative pillars. The explicit, regulative pillar consists of formal laws, regulations and rules which promotes and restricts behavior (Kostova, 1999). These rules and regulations ensure that people within society are protected and can live together harmoniously. The second cognitive pillar consists of social knowledge (i.e. knowledge which is typical or presumed) widely shared by people in a society (Kostova, 1999). The third and last normative pillar consists of an institutions’ “social norms, values, beliefs, and assumptions about human nature and behavior that is socially shared and carried out by individuals” (Kostova, 1997: 180). These shared norms and values indicate a shared feeling towards what is ‘right’ for members of society. Thus, the second and third pillars impose implicit rules within society and are not formalized. Several institutional scholars apply these pillars to theorize on their effect on firms’ operations (e.g. Busenitz, Gomez & Spencer, 2000; Kostova, 1997, 1999; Kostova & Roth, 2002; Kostova & Zaheer, 1999; Marano & Kostova, 2016; Xu & Shenkar, 2002). However, this three-pillar segmentation has been subject to debate due to overlapping dimensions (Scott, 1995). Therefore, following Kostova & Roth (2002), I combine the cognitive and normative pillars and will hereafter refer to them as the informal dimension. Furthermore, the regulative pillar will be referred to as the formal dimension of institutions (North, 1991).
Thus the institutional environment prescribes desirable behavior within society. These rules can be either explicit or implicit. When rules are explicit, referring to the formal
dimension, laws and regulations are formalized and subsequently prescribe desirable behavior. When these rules should be violated, the formal dimension can enforce formative regulations in order to ensure that people within society will adhere to them (North, 1990; Scott; 1995). However, it is known that countries with weak governance structures
inadequately enforce their formative regulations, consequently restraining their ability to coerce desirable behavior (Howard-Hassmann, 2005; Jing, 2008; Kaufman, Kraay &
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values and cognitions. In this paper, I will describe this phenomenon as a misalignment between the formal and informal dimensions. I will provide some examples which illustrate that this misalignment can result in harmful behavior.
First, the formal dimension could impose rules which are insufficiently accepted by the informal institutions. Kolk & van Tulder (2002) highlight such a misalignment for the setting of child labor. Although most country-level conventions agree that child labor is detrimental and should be abolished completely (Lund-Thomsen et al., 2012), some local societies’ informal institutions perceive it as a means to support their family and enhance a child’s individual development (Bellamy, 1997). Despite that formal regulations are trying to limit child labor (Lund-Thomsen et al., 2012), imposing these rules does not necessarily reflect the underlying norms and cognitive structures (i.e. informal dimension) which are embedded within a society. In fact, if these rules are sanctioned, but society does not acknowledge them, they can even have an adverse effect by pushing under aged workers towards hazardous, informal and unregulated work conditions (Jenkins, 2001; Kolk & van Tulder, 2002). Furthermore, Jing (2008) finds that China’s extensive formalized labor regulations only have a limited effect on the actual working practice. Many Chinese firms do not adhere to these regulations and poorly implement policies which aim to protect their workers’ rights. This working practice (i.e. ‘how things are done’) does not acknowledge formalized labor laws, consequently resulting in the violation of workers’ rights (ILO, 2015; Jing, 2008: 1099 – 1101).
Second, the informal dimension can also impose pressures which are insufficiently accepted by the formal institutions. This is illustrated by the nationwide uprising of Cambodian garment workers who believed that the formal institutions did not protect workers’ rights and that local laws insufficiently reflected their expectations towards e.g. minimum wages, right of association, collective bargaining and maternity leave. The formal institutions refused to adhere to these expectations and instead responded by violently suppressing the nationwide strike (Larson, 2014).
However, Lund-Thomsen et al., (2012) also find evidence that the institutional
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formal/informal dimensions reinforces institutional pressures which sanction desirable behavior. Interestingly, to the best of my knowledge, institutional scholars have not
empirically investigated whether and how the (mis)alignment of formal/informal dimensions affects society’s desirable behavior.
Figure 1: Conceptualized model illustrating (mis)aligned institutional dimensions.
The figure shows that both the formal & informal dimension can sanction desirable behavior within society. However, as argued above, the pressure-effectiveness of the individual dimensions can differ,
or these pressures might even be incongruent with one another. In these situations, I expect that institutional pressures inefficiently prescribe desirable behavior. However, when these formal/informal dimension are aligned and support one another, I expect that they sanction desirable
behavior more effectively.
INSTITUTIONAL DUALITY AND SUBSTANTIVE PRACTICE IMPLEMENTATION
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Not surprisingly, institutional theory is often applied to the challenges faced by MNEs (Kostova, Roth & Dacin, 2008). By focusing on a MNE parent-subsidiary relationship, this string of literature tends to look at how MNEs can transfer organizational practices to recipient units in other countries3 (e.g. D’Aunno, Succi & Alexander, 2000; Gooderham, Nordhaug & Ringdal, 1999; Kostova, 1999; Kostova & Roth, 2002). In this setting, the parent firm tries to achieve that their subsidiaries do not only accept the practices; they ought to substantively implement4 them. This internalization process requires that organizational practices become embedded in a recipient unit. An organizational practice is thus
substantively implemented when the recipient unit perceives it as “this is how we do things here” (Kostova, 1999).
For the MNEs facing institutional duality, the challenge of substantive
implementation presents a dilemma; “How can actors change institutions if their actions, intentions and rationality are all conditioned by the very institutions they wish to change?” (Seo & Creed, 2002). More simply put, MNE headquarters create new ‘rules of the game’ which need to be implemented by their subsidiaries, with dissimilar ‘rules of the game’. In fact, these organizational practices might even be incompatible with the local institutions, thus making the transfer even more troublesome (Greenwood et al., 2011; Kostova, 1999).
This complication becomes exceptionally apparent for the transfer of social sustainability practices, as CSR is embedded in the institutions’ informal dimensions
(Cambell, 2007). Following institutional duality, these dimensions vary across countries and subsequently affect the behavior of organizations (e.g. Dobbin, 1994; Dore, 1983). Campbell (2007) illustrates this through the commitment of most Japanese firms to offer life-long employment to their employees, whereas US firms generally show different normative standards for employment security. Thus, the transfer of CSR practices also becomes subject to the logic of institutional duality (Marano & Kostova, 2016).
Added thereto, aforementioned literature focusses on strong hierarchical headquarter-subsidiary relationships. Within the MNE, these relationships enable the parent to directly
3 In this context I specifically address the issue of institutional duality and the corresponding implications for organizations practice transfer. However, it should be noted that many sources build upon institutional distance (Kostova, 1999; Kostova & Zaheer, 1999). Institutional distance is the extent of (dis)similarity between two countries’ institutions. Given that this paper does not measures distance between countries (see
methodology), I do not elaborate on institutional distance. Instead I focus on the challenges that occur with the phenomenon of incompatible institutional expectations and the effect on local compliance.
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enforce and monitor the organizational practice transfer (Gereffi, 2005). However, the garment industry is characterized by captive buyer-supplier relationships where the suppliers maintains a high degree of autonomy (Huq et al., 2013). Western buyers cannot exert
hierarchical control over the supplier which complicates the transfer of essential operational practices (Gereffi, 2005). Although the current practice transfer literature provides us with valuable insights, to what extent are these findings applicable to the CSR pressures in our buyer-supplier context?
TRANSFER OF CSR PRACTICES: THE THREAT OF SYMBOLIC COMPLIANCE Opposed to the previously mentioned hierarchy-based transactions (i.e. MNEs parent/subsidiaries), the garment industry is characterized by arm’s length contracts between Western buyers and suppliers primarily located in D&ECs (Boston Review, 2013; Huq et al., 2013). Without exercising ownership, the buyers require that suppliers comply with local labor regulations if they want to access foreign markets (Lund-Thomsen, 2010; Nadvi, 2008). However, as argued (pg. 8) even these local formative regulations do not necessarily reflect the suppliers’ informal dimension. Thus, suppliers’ become subject to heterogeneous
institutional pressures in two ways: between countries’ institutions (i.e. institutional duality) and within a country’s institutions (misaligned formal/informal dimensions).
Western buyer pressures for social sustainability implementation
For understanding CSR compliance pressures in the buyer-supplier context, I first enquire upon the rise of CSR pressures within this industry. As from the 1980’s, developing countries’ shifted from regulating, towards attracting Foreign Direct Investments (FDI) and MNEs (UNCTAD, 1994:294). This enabled international firms (i.e. Western buyers) to benefit from cheap labor in D&ECs with corresponding notorious labor conditions (Howard-Hassmann, 2005; Jenkins, 2001; Robertson and Fadil, 1999). Yet, the early 1990’s presented a turning point as Nike was one of the first brands to experience the consequences of
profiting from sweatshops through arms-length contracting (Locke, 2003). They, and other firms within this industry, at first denied responsibility by declaring they did not directly employ workers and thus could not be held responsible for the precarious labor conditions; they were mere ‘hollow’ corporations which relied mostly on tacit resources such as brand image (Locke, 2003). However, a heavy reliance on brand image made these brands
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Yu, 2008). Thus, the bad publicity swayed Nike, and the overall industry, to take a more active stance and adopt CSR strategies intended to improve the working conditions of their suppliers’ employees (Christmann & Taylor, 2006; Locke, 2003; Yu, 2008).
The increased scrutiny led to the rise of Codes of Ethics, commonly referred to as corporate Codes of Conduct (CoC), which international firms often adopt voluntarily (Jenkins, 2001). CoCs are “written, distinct, and formal documents which consist of moral standards used to guide employee or corporate behavior (Schwartz, 2001). Since then, the adoption of voluntary CoCs has grown and became prevalent throughout the industry (Kolk, 2010; Yu, 2008). Although the quality of these CoCs substantially differs, ranging from vague to substantive declarations, they are implemented as tools for self-regulation and consequently safeguard for ethical misconduct (Van Tulder & Kolk, 2001; Kolk, 2010; Schwartz, 2001). Even though CoCs can have positive effects on the behavior of corporate agents (e.g. Egels-Zanden, 2014; Locke, Win & Brausse, 2007), other findings suggest that solely CoCs are insufficient for improving social standards and subsequently stress the importance of auditing and monitoring (e.g. Jenkins, 2001; Schwartz, 2001, van Tulder, Wijk & Kolk, 2009). To ensure that suppliers’ do comply with ethical requirements, certification standards such as Social Accountability 8000 (SA8000) – responsible for protecting workers’ rights – are therefore increasingly implemented throughout the global value chain
(Christmann & Taylor, 2006; SAI, 2012). The results are promising as these standards can be an effective mechanism for safeguarding prescribed conduct should the accompanying audits ensure supplier’s compliance (Aravind & Christmann, 2011; Ataseven, Prajogo & Nair, 2014; Naveh & Marcus, 2005). Thus, many scholars address the issue of mitigating suppliers’ violation of workers’ rights by looking at the pressure-effectiveness of the Western buyers (i.e., auditing and enforcement). They propose that audits should be deployed more
effectively to enforce suppliers’ substantive implementation of certification standards. However, research has found that informal governance mechanisms are inasmuch, or even more so, effective for influencing supplier behavior. Relationship building (Christmann & Taylor, 2006; Jiang, 2009), stimulating trust & involvement (van Tulder et al., 2009), internal pressures (Kostova & Roth, 2002; Guler, et al., 2002) and normative values and believes (e.g. Chin, Hambrick, and Trevino, 2013; Muller, 2006) all show promising effects on suppliers’ likelihood for complying with social sustainability practices.
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Interestingly, although some buyers expect that suppliers go beyond that what is expected by local law, most refer to the compliance of local labor regulations (Lund-Thomsen & Nadvi, 2010; Nadvi, 2008).
Supplier defiance: considerations for symbolic and substantive compliance In order to protect workers’ rights, it becomes imperative that suppliers will
implement social sustainability practices. Suppliers often complain that compliance will add costs to their operations, yet they are forced to comply in order to access foreign markets (Lund-Thomsen & Nadvi, 2010). The implication being that CSR merely becomes a way for securing contracts, neglecting the underlying ethical considerations (Jiang, 2009). Christmann & Taylor (2006) present that acquiescence allows suppliers to benefit from buyer outsourcing but that suppliers can simultaneously avoid costs by inadequately implementing the
requirements during daily operations. The enquiry of Schwartz (2001) reveals that suppliers show diverse motivations for this non-compliance. His respondents reveal incentives such as self-interest for both the individual and the firm, dissatisfaction with the inflicted practices, institutional coercive pressures, and unawareness of violations (Schwartz, 2001).
Not surprisingly, some enquiries find that the buyers’ requirements are only
symbolically complied with (e.g. Christmann & Taylor, 2006; Huq et al., 2013; Jiang, 2009; Stevenson & Zorzini, 2013; Stevens et al., 2005; Westphal & Zajac, 1994, 2001; Zhang et al., 2013). These situations point towards Meyer & Rowan’s (1977) process of decoupling as the supplier will do the bare minimum in order to maintain legitimacy. In our context, this
implies that symbolic adoption of CSR enables suppliers to access foreign markets and secure contracts (Jamali et al., 2015; Jiang, 2009). This decoupling process is also known as
symbolic compliance, whereas actual implementation in daily practices is known as substantive compliance. Thus the problem arises: although suppliers’ can access foreign markets by symbolically complying with the buyers’ CSR practices, substantive
implementation of social sustainability is not self-evident. Nevertheless, some enquiries have
14 HYPOTHESES: INCONGRUENT INSTITUTIONAL DIMENSIONS AND THEIR EFFECTS ON SUBSTANTIVE COMPLIANCE
Till thus far, my enquiry finds that suppliers are subject to foreign institutional pressures from Western buyers (e.g. Huq et al., 2013; Jenkins, 2001; Lund-Thomsen, 2008; van Tulder & Kolk, 2001). As a minimum requirement, these buyers expect that the suppliers will adhere to the local labor regulations (i.e. formal dimension) (Lund-Thomsen & Nadvi, 2010; Nadvi, 2008). However, even though the formative labor laws are emplaced, these laws are not necessarily aligned with the suppliers’ informal dimension. In these situations, formal institutions which prescribe social sustainability (i.e. desirable behavior) might not be
supported by local norms, values & cognitions. This can work twofold. First, the formal requirements of the buyers can be misaligned with the formal institutions in the home country. Second, the formal and informal institutions within the host country can be misaligned.
Our context is characterized by countries that are notorious for violating workers’ rights (Howard-Hassmann, 2005; Roberson & Fadil, 1999). However, these countries simultaneously have extensive labor laws, which even exceed those of developed countries (ILO,2015; Jing, 2008). Despite that these labor regulations are formulated, they do not reflect the actual situation in the respective country. Institutional theory proposes that, when suppliers violate these formalized rules, this would result in punishable measures that enforce compliance (North, 1990; Scott, 1995). However, our research setting is characterized by inefficient formal institutions that inadequately enforce formative rules and regulations (Howard-Hassmann, 2005; Jing, 2008; Kaufmann et al., 2010; Roberson & Fadil, 1999). When these regulations do not resonate with the informal dimensions, local suppliers could simply ignore them without experiencing legal consequences from the formal institutions. Nonetheless, Western buyers require that suppliers comply with these regulations should they want to access foreign markets (Lund-Thomsen & Nadvi, 2010; Nadvi, 2008).
Thus, even though formative labor regulations can be extensive, they might not reflect the informal dimensions. As suppliers are nevertheless bound to them, they can consequently turn to either symbolic or substantive compliance to ensure access to foreign markets. Solely having strict formal regulations are insufficient to achieve their purpose of protecting
workers’ rights (Jing, 2008). In fact, I expect that increased labor regulations will increase the difficulty for suppliers to substantively comply with formative pressures. Thus, the
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turn to either substantive or symbolic implementation. Therefore I predict that, despite that formal institutions have extensive labor laws, they do not guarantee substantive compliance. Moreover, these regulations can even overwhelm suppliers’ which could push them towards symbolic compliance. Subsequently, the increase of formative regulations could have an adverse effect; suppliers turning towards symbolic compliance in order to maintain access to foreign markets.
Hypothesis 1 (H1): The comprehensives of CSR-related formative regulations of the home country is negatively related to the suppliers’ substantive implementation of social sustainability practices.
As argued, even when these formative regulations do not necessarily reflect the suppliers’ informal dimension, they ought to conform by law to maintain access to foreign markets (Lund-Thomsen, 2010). However, the degree to which suppliers will substantive implement these labor laws hinges on the governments’ degree of commitment and the corresponding risk of legal consequences (Jing, 2008). As the quality of governance differs per country (Kaufman et al., 2010), deficient enforcement mechanisms are less likely to punish local agents that fail to adhere to regulations. Therefore, I propose that solely formalized labor laws are insufficient for changing behavior and that the implementation quality will thus depend on the governments’ dedication to enforce these laws. Hence, only when governments efficiently enforce their labor laws, it will result in substantive implementation of social sustainability practices.
Hypothesis 2 (H2): The government’s level of enforcement will have a positive moderating effect on the negative relationship between formative regulations and the suppliers’ substantive implementation of social sustainability practices.
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Thus, my third hypothesis proposes that, when local informal institutions (i.e.
cognitive structures, norms & values) are congruent with social sustainability, the suppliers’ quality of implementation will be higher. Yet, when social sustainability is not strongly embedded in the local norms, values and cognitions, I expect that this informal dimension will exert less pressures to protect workers’ rights. However, given that the suppliers are still required to comply with formative regulations in order to access foreign markets (Lund-Thomsen & Nadvi, 2010; Nadvi, 2008), they would resolve to symbolic implementation.
Hypothesis 3 (H3): When social sustainability is embedded in the home country’s informal dimensions, this will positively affect the suppliers’ substantive implementation of social sustainability practices.
As described, institutional theory proposes that when informal dimensions are formalized, the explicit rules will reflect the implicit cognitions and norms from a society (North, 1990; Scott, 1995). However, this paper presents situations where formal and
informal dimensions are misaligned (pg. 8), resulting in conflicting CSR-related institutional pressures which coerce incongruent pressures for desired behavior. Furthermore, our context is characterized by formal institutions which inadequately enforce their formative regulations (Christmann & Taylor, 2006; Howard-Hassmann, 2005; Jenkins, 2001; Jing, 2008; Kaufman et al., 2010; Roberson & Fadil, 1999). As these inadequately enforced formative legislations do not always reflect what society perceives to be desirable (i.e. informal dimension), I expect that it becomes likely that local actors ignore these formative regulations.
However, as argued in the third hypothesis, the informal dimension can also enforce desirable behavior (Trevino et al., 2008). When these informal dimensions embrace social sustainability, they can consequently coerce desired behavior of individuals and organizations within a society. Thus, when the formative regulations reflect CSR-related values which are embedded within the informal dimension, local agents are more likely to conform to these rules. Therefore, I would expect that suppliers are more likely to adhere to formalized labor laws when social sustainability is embedded in their informal dimension.
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would turn towards symbolic compliance. However, when informal dimensions resonate with the formative regulations, it becomes more likely to result in substantive implementation as the aligned formal / informal dimensions invoke more stable institutional pressures towards suppliers. Consequently, CSR-embedded informal dimensions could act as an enforcement mechanism which substitutes for a country’s weak formal institutions.
Hypothesis 4 (H4): The informal dimension has a positive moderating effect on the relationship between formalized CSR-related regulations and the suppliers’ substantive implementation of social sustainability practices.
Figure 2: Conceptualized model illustrating my proposed hypotheses.
The figure presents that formative regulations negatively affect suppliers’ substantive implementation, as unenforced regulations would result in increased complexity. Therefore, I argue that formative
regulations only meet their objectives when adequately enforced by the formal institutions. Furthermore, I expect that the level of CSR-embeddedness in the informal dimension will positively
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METHODOLOGY
Research Setting
This analysis examines the implementation quality of social sustainability practices of suppliers active in the garment and footwear industry. This industry is characterized by garment and footwear manufacturers, primarily located in D&ECs, which rely on orders from Western buyers for their exporting activities (Huq et al., 2012). As these Western buyers require that their suppliers comply with local labor regulations (Lund-Thomsen & Nadvi, 2010; Nadvi, 2008), they are subjected to the implications of institutional duality.
Specifically, suppliers experience CSR-related pressures from (1) foreign institutions that desire compliance with local labor regulations and (2) their local formal/informal dimensions. Added thereto, our research setting is characterized by countries with inadequately enforced formative regulations which could accommodate symbolic compliance. Therefore, the garment and footwear industry is an appropriate setting for measuring my proposed hypotheses.
Data and Procedures
Given that the quality of social sustainability of individual suppliers could not be derived from public data sources, this enquiry uses data from the Social Sustainability Survey collected by the University of Groningen. To construct this survey, 16 members of the
Business Social Compliance Initiative (BSCI) have been interviewed between December 2014 and April 2015. The BSCI is a large, multi-stakeholder initiative which advocates sustainable global supply chains. Given that the interviewees represented textile firms and approximately 80% of BSCI members are textile firms (BSCI, 2016), these interviews appropriately reflect the context of this study. These expert interviews were used to construct the Social Sustainability Survey which aims to improve understanding about the garment industry’s working practices and corresponding CSR challenges. For this particular enquiry, these interviews were valuable to gain insights into CSR challenges in the textile and garment industry.
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answered by managerial level respondents, provided that they had sufficient insight in their manufacturing plants’ social sustainability operations. Besides asking for general background information, the survey included questions about the manufacturing plant, its social
sustainability performance, their main customer and their corresponding relationship. This process of primary data collection has yielded usable responses from 231 textile and footwear suppliers (see ‘Implementation of Social Sustainability Practices’ (pg. 20) for the process of selecting observations).
Furthermore, my enquiry proposes that local cognitions, norms and values will
influence the suppliers’ likelihood for either symbolic or substantive implementation of social sustainability practices. As it seems that these cognitive and normative pillars are intertwined and that the distinction remains ambiguous at best (Kostova & Roth, 2002; Scott, 1995), I will use North’s (1991) alternative classification, who distinguishes between formal and informal institutional dimensions. This classification is analogous with that of Scott (1995) as they both agree upon the role of informal institutions for shaping social behavior within societies. Following Kostova & Roth, I combine the cognitive and normative pillars as informal institutions to look at how this affects organizational practice transfer.
Thus, a measure representing the informal dimension is required. My initial analyses on public data sources have failed to derive an informal construct which reflects the informal dimension5. Therefore, I have used data from the institutional profile survey for Social Sustainability. In a similar fashion as described above, the University of Groningen has constructed a second, domain-specific survey intended to measure regulative, cognitive and normative dimensions of social sustainability. These surveys were distributed throughout 2015/2016 in Bangladesh, Brazil, China, India, Indonesia, Malaysia, Pakistan, Peru, Portugal, Romania, Turkey and Vietnam.
Respondents in the 12 respective countries consisted of either local researchers or members of local trade/industry associations and were selected on their capacity to assess their countries’ perceptions and proceedings towards social sustainability (i.e. informal dimension). Since the surveys are answered by experienced country representatives, the somewhat limited amount of observations of some countries can still provide us with reliable
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results (e.g. Bangladesh & Brazil). Nevertheless, to construct a reliable country-level institutional dimension, we have decided to only include countries with a minimum of 5 observations. Given that only one Peruvian observation was returned, I could not construct a valid informal dimension for this country. As shown in table 2, the amount of observations has enabled me to utilize 96 observations from 11 countries.
Whereas the firm-level Social Sustainability Survey yielded results from 21 countries, the institutional survey yielded results from only 11 countries. Thus, for testing my proposed relationships between local institutional dimensions and firms located in these environments, the data collection of the institutional survey imposed restrictions on the number of countries to include in this enquiry. Furthermore, for the construction of the dependent variable, I exclusively selected suppliers which showed either symbolic or substantive CSR practices. This resulted in the elimination of 254 suppliers that did not fit this description (see
‘Implementation of Social Sustainability Practices’ for an elaborate explanation).
Consequently, these iterations have led to a final sample size of 231 suppliers located in 11 countries.
Measures
Implementation of Social Sustainability Practices. The dependent variable measures the quality of social practice implementation of suppliers. This variable is constructed by combining questions of the Social Sustainability Survey. Assessing sustainability
performance poses challenges given the realistic possibility that respondents will fill in the questionnaire in a socially desired manner. Furthermore, I expect that many suppliers hesitate to openly acknowledge misconduct given that they are often required by their buyers to comply with sustainability standards (Kolk, 2010). To account for this complication, the dependent variable was constructed through a series of iterations in order to measure actual and perceived implementation quality.
For the first step, suppliers filled in scale-items which reflect their perception of social sustainability performance. This enquiry subsequently interprets these results as the
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The second step involved the inclusion of Key Performance Indicators (KPIs). To illustrate, one of the KPIs incorporated in the survey assumes that a low level of
financial/sustainability reporting could signal poor social (working) conditions due to limited self-reflection of the manufacturer. Thus, when a supplier has limited financial/sustainability reporting, this would signal that social sustainability practices might be insufficient. This aggregated measure of KPIs consisted of the following five items: (1) designation of responsibility for social compliance, (2) employee consultation, (3) implementation of self-assessments, (4) documentation of social sustainability policies and procedures, and (5) integration of financial and sustainability reporting (See appendix 1 for an overview of the constructed dependent variable). These KPIs were combined with the perceived performance to assess suppliers’ quality of social sustainability practices and consequently ensure a valid construct.
Following the work of Kostova & Roth (2002), a K-means cluster analysis was
performed to determine group identification. As presented in table 1, this analysis has yielded 4 groups. The first group of suppliers scored high for both perceived performance and KPIs. The third group scored low for both measures. However, the second group showed high scores for perceived performance with intermediate KPI scores and the third group scores low on perceived performance but high for KPIs. For the purpose of this master thesis and the hypothesized effects on substantive/symbolic implementation, we define high perceived performance and high KPIs as substantive implementation, and high perceived performance with low KPIs as symbolic implementation. Thus, I enquire solely upon substantive/symbolic implementation and I have therefore excluded the two groups that did not fit this description. This resulted in a compression of the observations as, from a total of 485 observations, 231 suppliers fit the substantive/symbolic profile. The dependent variable was consequently coded as a binary variable (i.e. 1 = substantive CSR, 0 = symbolic CSR).
Formative regulations. The first independent variable representing the formative
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relations, (2) labor administration, (3) employment policies, promotion of employment and employment services, (4) education, vocational guidance and training, (5) employment security, (6) work conditions, (7) occupational safety and health, and (8) social security (See appendix 2 for an overview of the quantity of regulations per country, per item). Following Marano & Kostova (2016), I have constructed a summative scale, which measures each country’s amount of emplaced labor market regulations.
Regulatory enforcement. The second independent variable depicts the quality of
enforcement of labor market regulations. The data used for this analysis was made available by the World Bank’s World Governance Indicators (WGIs) (2015a). These WGIs measure governance quality through 6 dimensions; Voice & Accountability, Political Stability & Absence of Violence, Government Effectiveness, Regulatory Quality, Rule of Law, and Control of Corruption. Following other scholars (e.g. Almeida & Ronconi, 2012; Kauffmann et al., 2010), I have assessed the indicators on their relevance for measuring the enforcement of labor market regulations and consequently used only Rule of Law for measuring
enforcement regulations6. The measure Rule of law captures the extent of perceptions “to which agents have confidence in and abide to the rules of society, and in particular the quality
6 The WGIs measure overall enforcement mechanisms and do not specifically measure labor market
enforcement. However, I assume that the underlying representative sources (e.g. Enforceability of contracts, Contract enforcement, Speediness of judicial process, Reliability of police services, Degree of enforcement of court orders) have a direct effect on the enforcement of labor market regulations.
Table 1
Results K-means cluster analysis for group identification
Variables Obs. Mean Sd.
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of contract enforcement, property rights, the police, and the courts” (Kaufmann et al., 2010; World Bank, 2015a). This indicator measures governance quality through a scale item, ranging from -2.5 (weak governance) to 2.5 (strong governance).
Informal dimension. The informal dimension was developed using the institutional profile survey for Social Sustainability. The respondents assessed their level of agreement for 16 statements (items) on a 5-point Likert scale (e.g. “In this environment, being socially responsible is a moral obligation.”). The 16 items were developed to depict the 3 domain-specific institutional pillars, of which I have composed one informal dimension (Kostova & Roth, 2002; North, 1991). The development of a valid informal construct included several iterations using confirmatory factor analysis (LISREL): First, an analysis was performed on all items. Whereas cultural and normative items loaded strongly on an informal dimension, other items loaded strongly on a regulatory construct. These regulatory items were eliminated as I exclusively aimed to retain items for the informal dimension7. This resulted in in a set of 12 items. I then examined combinations of items with high factor loadings (>.7), construct reliability (>.7) and extracted variance (>.5). These combinations have led to a further elimination of 8 items, retaining the following items: (1) “There is a very strong message in manufacturing companies in this country that you cannot stay in business nowadays if you do not adopt social policy,” (2) ”Social standards (e.g. SA8000, BSCI, WRAP) are widely used amongst manufacturing companies in this country,” (3) “It is expected in this country that manufacturing companies would have a high social performance,” (4) “People in this country care a great deal about social sustainability at their workplace.” The construct of these 4 items is statistically significant (X2 = 2; p < .31; CFI = .99; GFI = .99; NFI = .98; SRMSR = .03; RSMEA = .04; Cronbach’s Alpha = 0.81) (Hair, Black, Babin & Anderson, 2010) (see appendix 3 for the CFA results).
Controls. For this enquiry several country and firm-level control variables have been added which I expect to affect the suppliers’ quality of social sustainability practices. To proxy international trade intensity – and corresponding dependency to foreign firms – I have
included the total value of Exports of Goods and Services (% of GDP). When a country has a
7 During my research I have also conducted Confirmatory Factor Analysis (LISREL) for the observations of the institutional survey. Trying over 100 iterations, I have tried to construct several combinations: (1) 3
institutional pillars, (2) formal & informal dimensions and (3) cognitive and normative dimensions. These analyses found several promising statistics for these constructs (Best result formal /informal: variables = 7; X2 = 16.81; DF = 13; p-value = 0.208; CFI = 0.986; RSMEA = 0.055). However, all these attempts failed as the
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large amount of exporting activities, it becomes likely that firms depend on foreign buyers which exert social sustainability pressures. Furthermore, I control for institutional pressures by including the Business extent of Disclosure Index provided that the extent of disclosure requirements – and corresponding exertion of legal rights – might affect the likelihood for either symbolic or substantive sustainability practices (Howard-Hassmann, 2005; Roberson & Fadil, 1999). The Business extent of Disclosure Index measures the extent to which investors are required to disclose financial and ownership information. This index varies between 0 and 10, with higher values corresponding to better outcomes (World Bank, 2015b). Due to the presence of missing values in the timeframe of this study (2015/2016), I constructed averages from 2011 till 2015. On the firm level, I control for CSR experience as I expect that firms with more social sustainability experience can more efficiently implement social
sustainability, which in turn can lead to substantive implementation. Furthermore, Carroll (1999) presents that the level of sustainability is influenced by the firm’s prior experience with CSR. This control has been measured in the Social Sustainability Survey though the respondents indication of amount of years that the manufacturing plant is actively involved in social sustainability development. Furthermore, it can be expected that Firm age and CSR
experience are correlated as a more mature firm also has more time to gain experience with
social sustainability, I have used the ratio of CSR experience / firm age to avoid potential multicollinearity problems. Following the country level control, I have also controlled for the manufacturing plants’ dependency on exports. When their exporting activities towards Western buyers would account for a large share of their total exports, it will become likely that they are subject to increased scrutiny and corresponding social sustainability pressures.
Dependency on exports is measured as the percentage of export profits that are derived from
customers located in North America or Western Europe. Firm size was added as larger firms can become subject to increased CSR scrutiny (Almeida & Ronconi, 2012). An explanation is offered by McWilliams & Siegel (2000), who find that larger firms are more likely to invest in CSR in order to avoid public pressures. Firm size was measured by the production quantity of the manufacturing plant. Finally, Withisuphakorn & Jiraporn (2016) have found that firm
age affects CSR practices as the process of maturing affects the degree of social sustainability
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RESULTS
Analysis
In order to test the hypotheses presented, I have conducted multiple binary logistic regression analyses. The correlation matrix present the descriptive statistics for all variables. As shown in table 3, two variables show high correlations (i.e. formalized regulations & enforced
regulations (r = .55). This is expected as I have argued that the formative regulations and
quality of enforcement interacts with one another. Nonetheless, these high correlations could result in possible multicollinearity issues. Therefore, I have turned to the Variance Inflation Factors (VIF) to test whether this would affect the reliability of the analysis. The VIF analysis shows that formative regulations has the highest VIF of 4.04. Thus, following the work of Hair et al. (2010), all variables score well below the threshold (VIF = 10) suggesting that multicollinearity is not worrisome (see appendix 4 for the VIF analysis). Finally, all variables have been standardized to ensure a better comparison between variables.
Table 2
Observations for the (institutional) Social Sustainability Survey Country of
observation
Number of Observations
Social Sustainability Survey Percentage
Number of Observations
26 Test of Hypotheses
Table 4 presents the results of the binomial regression analysis. I have tested my hypothesis following the sequence as presented in the literature review.
The first model contains my control variables. Hypothesis 1, tested in the second model, poses that solely having formative labor laws will negative affect suppliers’
substantive implementation of social sustainability practices. The coefficient of the formative regulations shows a strong negative direction and is significant (b = -.631, p < .05). Thus, the second model finds direct negative effects of formative regulations on substantive
implementation. However, the last model which includes all variables of the analysis does not find any significant effects for formative regulations (b = .364, p > .10). Thus, as formative regulations are significant in model two, but not in my final model, hypothesis 1 is only partially supported.
The third model tests the second hypothesis (H2) which predicts that enforced
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The fourth model introduces the effect of the informal dimension. This third
hypothesis (H3) states that when social sustainability is embedded in the informal dimension, it will positively affect the suppliers’ substantive implementation. The coefficient of the informal dimensions is positive and significant (b = .577, p < .05). However, the last model does not find any significant effects for this informal dimension (b = -.227, p > .10). Thus, as the informal dimension is significant in model three, but not in my final model, hypothesis 3 is only partially supported.
The final hypothesis states that when the informal dimension and the formative CSR-related regulations are aligned, this will result in mitigating the negative effect of formative regulations on substantive implementation of social sustainability practices. Thus, the
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the one presented in model 2, and they are statistically significant (b = -1.299, p < .01). The final model finds identical negative effects which are flagged as significant (b = -1.292, p < .10). Thus, although the interaction effects between formative regulations and the informal dimension are significant in both models, my hypothesized positive effect is not found. Thereby rejecting hypothesis 4.
DISCUSSION
This enquiry complements the propositions of institutional duality by empirically testing how the quality of garment and textile suppliers’ social sustainability implementation is affected by local institutional pressures. I add to existing research by proposing that the implications of organizational practice transfer (i.e. institutional duality) are equivalently affected by the degree of alignment of the host countries’ formal / informal dimensions. Subsequently, I accentuate that scholars and practitioners - which enquire upon the
effectiveness of the private sectors’ CSR-related pressures - ought to include the effects of local institutions’ formal and informal enforcement pressures. This is of paramount
importance as the increase of rules risk of pushing suppliers towards undesirable behavior,
especially when these local actors acknowledge CSR. Below, I will first discuss the direct
effects of formative regulations (H1) and informal dimensions (H3) on suppliers’ substantive implementation. In the second section I consequently discuss how formal / informal
enforcement mechanisms moderate mere formative regulations. These findings are used to suggest both theoretical and practical implications. Finally, I will conclude with research implications and limitations.
Findings and Implications
Formative regulations. As predicted in the first hypothesis, my enquiry finds that that
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inadequately protected despite the presence of extensive labor laws. Thus, my work supports the widely recognized notion that primarily labor regulations are insufficient to achieve their intended outcome. More importantly, I find that they adversely affect substantive
implementation of social sustainability practices. The findings subsequently suggest that the increase of formative regulations risks of overwhelming suppliers, consequently pushing them towards symbolic compliance. It should be noted that I do not propose that formative regulations need to be reduced, rather I suggest that formative regulations are insufficient on their own and need support in order to achieve their intended purposes.
Informal dimensions. Furthermore, the analysis supports the proposition that the
degree of CSR-embeddedness in the informal dimension will influence either substantive or symbolic implementation. These findings seem straightforward; when the informal dimension values CSR, this will result in an increase of substantive implementation. However, when the informal dimensions places less value on CSR, this will result in a decrease of substantive implementation. These results highlight the important role that suppliers’ local norms, values and cognitions play in shaping CSR-related behavior. More specifically, Western buyers that desire substantive CSR implementation need to account for the receptivity of the recipient country: should the informal dimensions place less value on CSR, it could become more challenging to ensure substantive implementation. This consequently hints towards the use of informal governance mechanisms (e.g. relationship building, trust and involvement) that direct suppliers’ informal dimensions towards enveloping social sustainability (e.g. Chin et al., 2013; Christmann & Taylor, 2006; Guler et al., 2002; Jiang, 2009; van Tulder et al., 2008). These findings provide evidence that both formative regulations and CSR-embedded informal dimensions have an effect on the quality of compliance. Whereas increased
formative regulations can push suppliers towards symbolic implementation, the degree of CSR-embeddedness of the informal dimensions will positively affect substantive
implementation.
Alignment of enforcement mechanisms
30 Moderating effect of formal enforcement. My analysis reveals that formative
regulations are insufficient to evoke desirable behavior. Rather my second hypothesis shows that, in order to promote substantive implementation, formative regulations are only effective when they are backed with formal enforcement mechanisms. The analysis therefore supports the existing literate that states that formative regulations are primarily effective at influencing desired behavior when they are adequately enforced (e.g. Jing, 2008; Kaufmann et al., 2010). Although these empirically supported findings are rather self-evident, it is interesting to see how the government’s enforcement mechanisms affect suppliers’ substantive
implementation of social sustainability practices. These findings imply that, as regulations are only effective when they are adequately enforced, it becomes of paramount importance to strengthen the local governance quality to ensure that workers’ rights are adequately protected. This also hints towards the validity of private governance mechanisms that Western buyers employ (e.g. auditing and monitoring). However, these findings principally suggest that Western buyers promote substantive implementation more effectively when they strengthen or complement the local governments’ enforcement mechanisms.
Moderating effect of the informal dimension. My fourth and final hypothesis argues
that, when local norms, values and cognitions value social sustainability, they would act as an enforcement mechanism which coerces the supplier towards social sustainability. Therefore, the alignment of the formal dimension and the formative regulations will evoke more stable institutional pressures, consequently mitigating the negative effect of formative regulations on substantive implementation. Interestingly, this line of reasoning is not supported by the analysis. Contrary to my expectations, the results show that the alignment of formal /
informal dimension will result in stronger negative effects. Thus, when formative regulations and the informal dimensions become aligned, it will only aggravate the compliance
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seemingly contradicting behavior is a familiar phenomenon within social psychology. Roth & Mullen (2002) explain that when people are subject to stress, people are inclined to reduce it. This can lead to counterproductive situations as people take actions which have the short term advantage of stress reduction even when this negatively affects long-term goals. By
discussing the mechanism of ‘Approach-Avoidance Conflict’, Roth & Mullen (2002:28) present the following useful example:
“For example, we are attracted to a business proposition for its potential profits, but repelled by its potential losses …. Sometimes we want to do something so badly that we overcome our fear by steeling ourselves and rushing ahead blindly to “take a leap in the dark” and thereby take an action from which we cannot turn back.”
Applying this to our context, Western buyers impose CSR requirements which prescribe a conformity with local formative labor regulations (Lund-Thomsen & Nadvi, 2011; Nadvi, 2008). Suppliers can access foreign markets by adhering to these CSR requirements (Huq et al., 2013). Thus, conformity to these rules is required for gaining legitimacy and thus participate in business activities (Granovetter, 1985; Roth, Kostova, & Dakhli, 2011). By accepting orders from Western buyers the supplier can therefore increase its likelihood of survival (Meyer & Rowan, 1977). However, substantively implementing these local formative regulations can be strenuous, especially when they are extensive. Moreover, the suppliers do not necessarily have the available resources to meet formative labor regulations (Wijen, 2015). As these suppliers value social sustainability, they are conscious that they do not meet the required standards. Therefore, in order to reduce
institutional pressures and subsequently benefits from export, their decoupling seems to act as a self-conscious survival mechanism (i.e. symbolic implementation). Nonetheless, my
findings do not imply that substantive implementation will not occur in the long run. In fact, Egels-Zanden (2014) finds evidence that recoupling can incur over time, leading to
substantial improvements in suppliers’ social sustainability practices.
Implications and Limitations
Practical implications. This analysis presents several findings that hold value for
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with regulations. Second, the embeddedness of the CSR requirements in the informal dimensions can predict quality of compliance. When CSR is embedded in the informal dimension, it is likely to positively affect substantive behavior. Practitioners could therefore include the CSR-receptivity of the host country when they strategize upon their outsourcing activities. However, this enquiry finds that this seemingly intuitive relationship does not always hold. In fact, when the formative regulations are aligned with CSR supportive norms, values and cognitions, it could result in paradoxical behavior as suppliers are even more so pushed towards symbolic compliance. As argued, I believe that the negative effect of CSR awareness can be explained by the suppliers need to gain access to foreign markets: symbolic compliance becomes a mechanism which helps the supplier to survive. In fact, suppliers with good intentions could also be punished by financial consequences. My third implication therefore suggests that practitioners should mitigate the adverse effect of requiring formative regulations through buyer-supplier dialogue and support.
Theoretical implications. The findings of this study offers several theoretical
implications. First, my analysis extends the framework of institutional duality by showing that the implications also applies within institutions. As research covering institutional duality particularly focusses on differences between countries (e.g. Greenwood et al., 2011; Kostova & Roth, 2002; Kraatz & Block, 2008), they seem to overlook that these differences can become aggravated by unaligned local institutional dimensions. Furthermore, through presenting the moderating effect of institutional dimensions, I empirically show that the (mis)alignment of these dimensions will affect behavior. In fact, the findings of my fourth hypothesis present that the interaction of institutional dimensions can result in unexpected behavior. Subsequently, I propose that scholars who investigate the phenomenon of heterogeneous institutional pressures and their effect on behavior, should also include the effects of formal and informal dimensions. Moreover, the interaction of these formal and informal dimensions could hold promise for explaining unusual behavior.
Second, by looking at the interaction effect of formal enforcement mechanisms and informal dimensions on formative regulations, I find empirical evidence which supports the notion that both can influence desirable behavior. Subsequently, my analysis implies that the effectiveness of the Western buyers’ formal (e.g. audits & monitoring) and informal
government mechanisms (e.g. relationship building, trust & involvement) might depend on the receptivity of local institutions. By including the moderators of this analysis (regulatory
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institutional environment alters the effectiveness of private governance mechanisms. Thereby improving our understanding of how local institutional pressures dictate the appropriateness of certain private governance mechanisms.
Research limitations. This analysis presents the implications of institutional pressures
on either symbolic or substantive implementation. The dependent variables includes 231 suppliers who fit this symbolic/substantive description. This approach has therefore led to the elimination of 254 suppliers who presented behavior that is not covered by this thesis. I recognize the limitations of this classification process as it excludes the possibility of finding alternative implementation behavior. Furthermore, the elimination of relevant data could explain why the first and third hypothesis are only partially supported; the reduced sample size could affect the reliability of my hypothesized relationships. Added thereto, the
formative measure consists solely on the quantity of labor regulations, thereby ignoring the quality of these regulations. To the best of my knowledge, I expect that the improvement of these imperfect measures will also improve the reliability of my statistical findings.
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